The mantra of responsible investors is diversify. Don’t be too heavily committed to one sector or one type of investment. A balanced portfolio is the key to success. In the good times, you won’t get the spectacular results but in the bad times you’ll avoid painful losses.
But many of the top
In the short term, the financial meltdown is likely to be a boon for these firms. Many have been tirelessly handling crisis assignments: the Wachovia-Citibank-Wells Fargo saga; the sale of Bear Stearns and Merrill Lynch; the dismantling of Lehman Brothers; the conversion of investment banks to bank holding companies.
But months and years from now, when the dust settles, what kind of work will be left on the new Wall Street, and will the remaining clients be willing to pay top-tier rates approaching $1,000 (£660) an hour? The American Lawyer, Legal Week’s sister title, interviewed more than 15 law firm leaders and consultants to get their views. Some see a dramatic and fundamental shift in the landscape for law firms, -predictions that happen to justify their long-term strategies. Others predict business mostly as usual — at least for -themselves.
One person who sits at the eye-popping-change end of the scale is Peter Kalis, the chairman of K&L Gates. “The metaphysical question is whether you can have bulge-bracket Wall Street firms without Wall Street,” says Kalis. “The capital markets, when they rebound, will no longer have the margins they once did. Like night follows day, they will not be willing to pay premium rates.”
Lacking diversity
Kalis maintains that competitive firms will have to be diversified across countries, currencies, practice areas, and industries. He says that Wall Street firms will suffer for their lack of diversity. “We will see the proposition that Wall Street firms did not have to do international build-outs to be fallacious, and they will be exposed for not being sufficiently diversified,” says Kalis, whose firm has grown to 1,500 lawyers in 28 offices on three continents over the past decade.
On the other extreme is Simpson Thacher & Bartlett, which has 80% of its lawyers in
“I do not think [the market changes] will impact fees,” he says. “The M&A work will come back, and Goldman Sachs and Morgan Stanley will be advising the companies doing M&A, and I do not see the fees being different… The private equity firms will be back. They are sitting there with huge piles of money.” In the meantime, Simpson will be kept busy by, among other things, representing the US Department of the Treasury as it manages the $700bn (£466bn) bailout fund.
Some of his peers disagree. Mel Immergut, chairman of Milbank Tweed Hadley & McCloy, expects clients to drive harder bargains on fees. “With the consolidation going on, there will be increased pressure on fees that comes with increased buying power,” he says. “At the high end of the fee scale, we will have to prove ourselves even more.” He also believes that
Consultant Ward Bower of Altman Weil concurs. “Some firms, particularly in
Evan Chesler (pictured), the presiding partner of Cravath Swaine & Moore, stresses that firms do not need lots of offices to be diversified. “It is too easy to confuse geography with geographic reach,” he says. “It is not the same thing.” Cravath has 97% of its lawyers in
Although Cravath has just one small outpost in
Even before the drama of September, many
Will meltdown-related work save them? DiPietro says that although there’s been a “flight to quality in this turmoil”, it is unclear how long this will continue. “There is no way to predict what kind of transactions will be happening [in the future],” he says. “Financial institutions will make money, but in different ways in the next five years.”
Consultant Peter Zeughauser does not see trouble for the big
The Charlotte-based bank keeps an exacting leash on outside counsel and requires that a significant number of women and minorities staff its matters. The company’s detailed rules for outside counsel, which are available on their website, might send shudders down the spines of some high-end lawyers. For example, forget about billing for conflicts checks, and get used to -discounted fees. One partner whose firm does work for BofA chuckled as he wondered aloud how Wall Street firms will react when BofA “applies the thumbscrews”.
It’s an awkward time to suggest this, but in the end, the market will provide the answers. Clients may not reach for the thumbscrew if they think they really need a particular firm; firms, even famously independent ones, may bend if they think they need the work. “There will be a Wall Street, and [it] will need lawyers,” says Chesler. “The best lawyers will be in demand for the most demanding situations and clients.”
And then there’s everyone else who will have to cope with the economy’s collateral damage. “The top
It is ‘the rest of us’ who will have to change, “and maybe that’s a good thing,” he says. Now that the easy times are over, we will see who’s got the right DNA to evolve.
This article first appeared in the November edition of The American Lawyer, Legal Week’s